3.5 Step 4: Ensure That 75 Percent of Revenue Is Reported

ASC 280-10

50-14 If total of external revenue reported by operating segments constitutes less than 75 percent of total consolidated revenue, additional operating segments shall be identified as reportable segments (even if they do not meet the criteria in paragraph 280-10-50-12) until at least 75 percent of total consolidated revenue is included in reportable segments.

In step 4, an entity evaluates whether its reportable segments constitute at least 75 percent of total consolidated revenue. Unlike the 10 percent revenue test in step 2, this test takes into account external revenue reported by operating segments and total consolidated revenue, both of which are on a U.S. GAAP basis.

ASC 280 does not specify which of the remaining segments an entity must identify as reportable to meet the 75 percent requirement or that the additional segments need to be the next largest (relative to those already identified) by any of the measures. The entity should therefore use judgment and evaluate each situation on the basis of the individual facts and circumstances. Additional operating segments would be treated no differently from other reportable operating segments (i.e., required disclosures would be the same). Even if a segment does not meet the quantitative requirements, management may elect to separately report the segment if disclosure would be material to financial statement users.

Example 3-9

Assume the same facts as in Example 3-7, in which the basketball, football, and leather plant segments each meet the 10 percent revenue test and are reportable segments. Also assume that soccer and volleyball did not meet any of the quantitative thresholds in ASC 280-10-50-12 (i.e., the absolute amount of the segment’s reported profit or loss or the asset test, where applicable).

The calculation of whether these three reportable segments constitute 75 percent of total consolidated revenue would be performed on the $1,570 of external revenue. The basketball, football, and leather plant revenue segments account for 71 percent of total external revenue. Therefore, either the soccer or the volleyball operating segment would need to be shown as a reportable segment to meet the 75 percent requirement.

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